On September 2, the Far Eastern local and inter-regional communications operator, Dalsvyaz, released its 1Q 2008 results audited to IFRS.
The published results were generally above our expectations for the company's growth rate and margins in FY 2008.
The operator's revenue rose by just 8% y-o-y due to absence of tariff indexation for FY 2008. We expected the situation to be even worse and projected the company's revenue to rise by just 4% in 2008. However, we do not rule out that the company may show a slower revenue upturn by the year-end: some of its business segments, particularly, the cellular division, showed negative performances in 1Q.
Dalsvyaz OIBDA margin rose by 5%, which also exceeds our 4% forecast for this indicator in FY 2008. We should note the management's excellent control over the company's main expenditure item, labor costs, which were cut by 7%. The operator's net profit margin advanced by 2% to 15%, which is also a very strong indicator, in our view.
Dalsvyaz: IFRS Financials 1Q 08, RUB million
| | 1Q 2007 | 1Q 2008 | 1Q2008 / 1Q2007 | 2008/2007 forecast |
|---|
| Revenue | 3.638 | 3.925 | 8% | 4% |
| OIBDA | 1.297 | 1.610 | 24% | 18% |
| OIBDA margin | 36% | 41% | 5 p.p. | 4 p.p. |
| Net profit | 460 | 591 | 28% | 18% |
| Net profit margin | 13% | 15% | 2 p.p. | 1 p.p. |
Source: company data, Finam forecasts and estimates
As the financial results were above our forecasts, we reiterate our Buy recommendation for both Dalsvyaz commons and prefs with the target price of USD 6.7 and USD 6.44 per share, respectively. In current conditions, Dalsvyaz, as well as other inter-regional companies, looks very attractive from the fundamental point of view.
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